But households and businesses face growing pressure
Reserve Bank of New Zealand governor Adrian Orr (pictured above) said the nation’s financial system is well placed to handle the higher interest rate environment and international financial disruptions.
Orr’s comments came as the bank released its May 2023 Financial Stability Report.
Global inflation continues to persist at high levels, but while central banks have recently eased the pace of monetary policy tightening, the full extent of the impact of the successive rate hikes are yet to be seen.
Orr said Kiwi households are facing increased debt servicing costs as their borrowing reprices to more expensive rates.
“To date there have been limited signs of distress in banks’ lending portfolios, with only a small share of borrowers falling behind on their payments,” Orr said.
“This reflects the ongoing strength of the labour market and that borrowers have been able to adjust their spending or use previous savings and repayment buffers. That said, cash flow pressures among households and in some business sectors are growing.”
Christian Hawkesby, RBNZ deputy governor, said house prices have continued to fall and are closer to being at sustainable levels than has been the case in recent years.
“We recently announced we are consulting on easing our LVR speed limits from historically tight settings, reflecting our assessment that current lending activity presents less risk to financial stability,” Hawkesby said.
The wild weather events that lashed across North Island earlier this year have caused significant economic disruption and physical damage to affected households, businesses, and property.
The RBNZ noted that while New Zealand’s financial system as a whole has been resilient to these events, they highlight the ongoing need for work to better understand and manage weather- and climate-related risks.
“The New Zealand banking system’s capital and liquidity positions are strong, with profitability and asset quality remaining high,” the central bank said in a statement.
“New Zealand’s banks are not materially exposed to the same interest rate risks which have contributed to some recent bank failures in the United States. Overall, New Zealand’s financial institutions are well positioned to continue to take a long-term perspective and support their customers through the current economic challenges.”
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